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Re: congress/oil compaines/crude/record profits
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Posted by Steve KS on March 16, 2006 at 14:17:53 from (198.248.192.39):
In Reply to: congress/oil compaines/crude/record profits posted by Gary in TX on March 16, 2006 at 13:19:02:
I hate the high gas prices as much as the next guy, but lets put the blame where it"s due - the futures market speculators. You can"t blame the oil companies - they don"t set the price. So how is price determined? Well from your Econ 101 class you learn that price (in theory) is a funtion of supply and demand. Let"s start w/ supply. As a matter of fact the oil companies are pumping about the same or more than when gas was $1.30. (Keep in mind OPEC is a MUCH larger supplier than domestic producers, their output hasn"t changed that much either) So that leaves demand. That one"s a little harder to pin down, but it"s pretty obvious that demand has increased due to more countries becoming industrialized (read China). Has demand increased by that much though? Personally I don"t think so, and here"s where the market speculators come in - they are the ones who actually set the price each day for oil and gas. So why is the price so high? The speculators are constantly betting that supply and demand will go one way or the other due to some occurance worldwide. Presently they"re all convinced that demand is going through the roof. Personally, I think the bubble will burst one of these days - just like the tech stock bubble. Why? There just isn"t a sound economic reason why oil/gas is so high. This is what Mr. Greenspan would call "irrational exuberance." Think of it this way - you"re a farmer and you grow wheat. For some reason or another, the price of wheat goes to $10/bu. Are you all of a sudden a greedy farmer out to gouge the bakers? No, you"re only being rational - just like the oil companies. When the price is high you sell as much as you can. That"s why oil companies are seeing record profits - they"re selling about the same amount of oil, but the price is about double what it was a couple years ago.
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